A candlestick is a traditional way of representing prices on a graph. Each candlestick is represents all of the price action during a specified time period. Each candlestick contains exactly four pieces of data, the prices of the first print, the last print, the highest print, and the lowest print inside of the candle.
Candlesticks were invented many years ago by Japanese rice trades to track the rice market. They are now popular for tracking stock prices because they are so easy to compute and use. Many candlestick patterns are described in detail in Japanese Candlestick Charting Techniques by Steve Nison which many consider to be the bible of candlestick charting. We generally prefer statistical analysis to candlesticks because candlesticks leave out too much data. Candlesticks are particularly misleading on intra-day charts.
The biggest problem with candlesticks is that a single, small print can change the shape of the candle. A single print which is much higher or lower than the rest of the prints will make the biggest change to the candle. The closing price of a candle comes from the last print before the candle ends. For intra-day charts, these times are completely arbitrary; you almost randomly choose one print to highlight. What if a large print happens a second before a small print at a different price? Which one becomes the closing print of the candle? The opening price of the candle is even more misleading. When you make a 15-minute candlestick chart, you choose two adjacent prints to represent the entire 15 minute period. Why plot two adjacent prints? You would have a better representation of the data if you selected one print every 7 1/2 minutes.
Our statistical analysis avoids these problems altogether. No one print stands out in our analysis. A small print which disagrees with the rest of the data is discarded. We also offer a limited number of traditional candlestick patterns.
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